Bench Progress Drives RPCVD towards New Markets, Collaborations & Increased Value
Event
BLG released a lot of significant and unexpected new data with its 8 November RPCVD
presentation, complementing its uniformity achievements announced in September. The
data was targeted at industry participants rather than investors making it difficult to
comprehend. We decipher the numbers and rationale for releasing them, concluding BLG
has made incredible progress in the lab and commercial progress is not too far away. Our
forecasts and rating remain unchanged, our TP is increased to $0.80 (from $0.65). BUY.
Highlights
 RPCVD grown green LEDs 35-47% brighter than industry standard – when BLG first
announced in 2016 that it had produced green LEDs that were 10% brighter than
industry standards, global LED manufacturers inundated BLG for details, some took up
collaborations, now with its latest data showing 35-47% brighter performance
(depending on current) the technology becomes very disruptive - threatening business
models. BLG is collaborating with Veeco, HC Semitek and Seren on green LEDs, with this
latest data and the uniformity data announced in September, we expect a competitive
process to determine a formalised collaboration in FY18.
 RGB in one process – no one else can do it & it potentially opens multi $bn markets!
Possibly the most significant new data BLG released showed it has produced the full
colour spectrum (red-green-blue) on a single LED wafer. The implications are
enormous. It could solve multiple problems, currently preventing next generation
phones, augmented reality devices and many other consumer products from becoming
a reality. Nearly all of the big consumer product companies are talking about Micro
LEDs and some are investing in various technologies that will be required to get into
commercial production. Apple acquired Luxvue for USD340m, Facebook acquired
Oculus for USD2bn, both are looking for next generation displays. Companies with
aspirations to utilise micro LED technology in future devices now have to be interested
in RPCVD because no other process is able to produce red-green-blue on the one wafer.
BLG is a long way from production, but the numerous undisclosed companies that have
been using its foundry services to develop this technology will all want exclusivity and
we believe the data pack presented at WUPP 2017 (see page 3) was primarily designed
to increase the competitive tension around collaborating.
ď‚· New data supports expectations of a Lumileds deal. Lumileds is a sensitive subject for
BLG given the non-disclosure agreements it is bound by. However, based on the
significant advances BLG has disclosed around its work on LEDs in general, which would
impact its work for Lumileds, we expect it has developed game changing technology.
We expect, despite finalising phase 2 specs taking longer than initially expected,
Lumileds will commit to a commercial agreement before BLG is free to share the jointly
developed processes and data with Cree and Osram at an undisclosed time in 2018.
Recommendation
BLGs low temperature RPCVD process is delivering significantly improved crystal structures
which make existing semi-conductors more efficient (they need less power to produce
bigger outputs ie light, signals, power etc) and are enabling the development of new
semiconductors that will underpin next generation technologies (such as 5G phones,
sensors for electric cars, augmented reality, very efficient battery & solar technology).
These applications represent multibillion dollar markets consequently the leap forward
seen with BLGs latest data release represents value creation and diminished technology
risk. Multiple announcements are now expected over prospective months which will
monetise the value we have identified. This is occurring as the global semiconductor sector
is going through a revaluation (eg in Australia 4DS is up 25% in 12 months, Weebit up 70%,
and overseas IQE is up 10x in 18 months, Qorvo up 2.5x, Skyworks 2x ). With its tech
advances, increased customer engagement and diminished risk, our TP is increased to
$0.80 and we recommend buying ahead of announcements.
BluGlass (BLG)
Rating: Buy | Risk: High | Price Target: $0.80
Key Information
Current Price ($ps) 0.36
12m Target Price ($ps) 0.80
52 Week Range ($ps) 0.23 - 0.41
Target Price Upside (%) 122.2%
TSR (%) 122.2%
Reporting Currency AUD
Market Cap ($m) 133.9
Sector Information Technology
Avg Daily Volume (m) 1.0
ASX 200 Weight (%) 0%
Fundamentals
YE 30 Jun (AUD) FY17A FY18E FY19E FY20E
Sales ($m) 0.7 10.2 31.0 108.0
NPAT ($m) (3.7) 5.5 23.3 99.2
EPS (cps) (1.0) 1.4 6.1 25.9
EPS Growth (%) (6.8%) 239.5% 322.5% 326.0%
DPS (cps) (AUD) 0.0 0.0 0.0 0.0
Franking (%) 0% 0% 100% 100%
Ratios
YE 30 Jun FY17A FY18E FY19E FY20E
P/E (x) (25.2) 25.0 5.9 1.4
EV/EBITDA (x) (28.5) 22.0 4.3 0.2
Div Yield (%) 0.0% 0.0% 0.0% 0.0%
Payout Ratio (%) 0.0% 0.0% 0.0% 0.0%
Price Performance
YE 30 Jun 1 Mth 2 Mth 3 Mth 1 Yr
Relative (%) 1.8% 9.7% 21.0% (0.8%)
Absolute (%) 2.9% 14.3% 24.1% 10.8%
Benchmark (%) 1.1% 4.6% 3.1% 11.6%
0.22
0.24
0.26
0.28
0.30
0.32
0.34
0.36
0.38
0.40
0.42
Nov Jan Mar May Jul Sep
S&P/ASX 200 Index BLG
Price performance indexed to 100 Source: FactSet
16.1%
4.7%
5.7%
1.2%
0.8%
Major Shareholders
Sumitomo Precision Products Co., Ltd.
Wellington Management Group LLP
Access Macquarie Ltd.
Bluglass Ltd. Employee Incentive Scheme
Macquarie University Foundation
Darren Vincent | Senior Analyst
+61 2 9238 1269
[email protected]
Matthew Johnston | Analyst
+61 2 9238 1311
[email protected]
Shaw and Partners BLG – Equity Report – 20/11/2017 – Pg. 8
BluGlass Ltd. engages in the development and
commercialization of semiconductor material gallium
nitride. The company develops semiconductor processes
and equipment for the manufacture of high efficiency
devices such as next generation lighting technology, light
emitting diodes and concentrated. Its proprietary
technology, remote plasma chemical vapour deposition
manufactures semiconductor materials for high efficiency
devices such as LEDs and concentrated solar cells for utility
scale solar. The company was founded in June 2005 and is
headquartered in Silverwater, Australia.
Information Technology
Semiconductors & Semiconductor Equipment
Key Items Data
Recommendation BUY
Risk HIGH
Price ($ps) 0.36
Target Price ($ps) 0.80
52 Week Range ($ps) 0.23 - 0.41
Shares on Issue (m) 371.8
Market Cap ($m) 133.9
Enterprise Value ($m) 123.1
TSR (%) 122.2%
Valuation NPV Data
Beta 2.00
Cost of Equity (%) 17.3%
Cost of Debt (net) (%) 7.8%
Risk Free Rate (%) 5.3%
Terminal Growth (%) 3.0%
WACC (%) 20.1%
Company Description
BluGlass
FactSet: BLG-AU / Bloomberg: BLG AU
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Jun13 Jun14 Jun15 Jun16 Jun17
Price to Earnings (x) - NTM
BluGlass
Source: Shaw Research
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jun13 Jun14 Jun15 Jun16 Jun17
Dividend Yield (%) - NTM
BluGlass
Source: Shaw Research
Investment Summary (AUD) FY16A FY17A FY18E FY19E FY20E
EPS (Reported) (cps) (1.0) (1.0) 1.4 6.1 25.9
EPS (Underlying) (cps) (1.0) (1.0) 1.4 6.1 25.9
EPS (Underlying) Growth (%) (0.7%) (6.8%) 239.5% 322.5% 326.0%
PE (Underlying) (x) (21.7) (25.2) 25.0 5.9 1.4
EV / EBIT (x) (20.8) (24.8) 22.3 4.3 0.2
EV / EBITDA (x) (25.3) (28.5) 22.0 4.3 0.2
DPS (cps) (AUD) 0.0 0.0 0.0 0.0 0.0
Dividend Yield (%) 0.0% 0.0% 0.0% 0.0% 0.0%
Franking (%) 0% 0% 0% 100% 100%
Payout Ratio (%) 0.0% 0.0% 0.0% 0.0% 0.0%
Free Cash Flow Yield (%) (3.3%) (2.6%) 4.4% 16.8% 59.3%
Profit and Loss (AUD) (m) FY16A FY17A FY18E FY19E FY20E
Sales 0.4 0.7 10.2 31.0 108.0
Sales Growth (%) 11.3% 86.0% 1,389.4% 203.9% 248.4%
Other Operating Income 2.5 2.1 2.0 0.0 0.0
EBITDA (2.8) (3.2) 5.6 23.4 99.3
EBITDA Margin (%) nm nm 54.9% 75.4% 92.0%
Depreciation & Amortisation (0.6) (0.5) (0.1) (0.1) (0.1)
EBIT (3.4) (3.7) 5.5 23.3 99.2
EBIT Margin (%) nm nm 54.1% 75.1% 91.9%
Net Interest 0.0 0.0 0.0 0.0 0.0
Pretax Profit (3.4) (3.7) 5.5 23.3 99.2
Tax 0.0 0.0 0.0 0.0 0.0
Tax Rate (%) 0.0% 0.0% 0.0% 0.0% 0.0%
Minorities 0.0 0.0 0.0 0.0 0.0
NPAT Underlying (3.4) (3.7) 5.5 23.3 99.2
Significant Items 0.0 0.0 0.0 0.0 0.0
NPAT Reported (3.4) (3.7) 5.5 23.3 99.2
Cashflow (AUD) (m) FY16A FY17A FY18E FY19E FY20E
EBIT (3.4) (3.7) 5.5 23.3 99.2
Tax Paid 0.0 0.0 0.0 0.0 0.0
Net Interest 2.5 2.3 0.0 0.0 0.0
Other (1.5) (1.2) 0.7 (0.1) (17.5)
Operating Cashflow (2.5) (2.6) 6.2 23.2 81.8
Capex 0.0 0.0 (0.1) (0.1) (0.1)
Acquisitions and Investments 0.0 0.0 0.0 0.0 0.0
Disposal of Fixed Assets/Investments 0.0 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0
Investing Cashflow 0.0 0.0 (0.1) (0.1) (0.1)
Free Cashflow (2.5) (2.6) 6.1 23.1 81.7
Equity Raised / Bought Back 3.3 7.7 0.0 0.0 0.0
Dividends Paid 0.0 0.0 0.0 0.0 0.0
Change in Debt 0.0 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0
Financing Cashflow 3.3 7.7 0.0 0.0 0.0
Net Change in Cash 0.9 5.1 6.1 23.1 81.7
Balance Sheet (AUD) (m) FY16A FY17A FY18E FY19E FY20E
Cash 3.4 8.5 14.6 37.7 119.4
Accounts Receivable 2.1 2.2 3.3 5.1 24.2
Inventory 0.1 0.1 0.1 0.1 0.1
Other Current Assets 0.1 0.0 0.0 0.0 0.0
PPE 0.8 0.3 0.3 0.3 0.3
Investments 0.0 0.0 0.0 1.0 1.0
Total Assets 15.1 19.9 27.0 52.0 152.8
Accounts Payable 0.2 0.4 0.3 0.3 0.4
Short Term Debt 0.0 0.0 0.0 0.0 0.0
Long Term Debt 0.0 0.0 0.0 0.0 0.0
Income Taxes Payable 0.0 0.0 0.0 0.0 0.0
Other 0.7 0.8 0.4 0.4 0.4
Total Liabilities 0.9 1.2 0.6 0.7 0.7
Ratios FY16A FY17A FY18E FY19E FY20E
ROE (%) (24.3%) (22.2%) 24.4% 59.9% 97.6%
Net Debt / Book Equity (x) (0.2) (0.5) (0.6) (0.7) (0.8)
Net Debt / EBITDA (x) 1.2 2.7 (2.6) (1.6) (1.2)
Financial Year End: 30 June
Shaw and Partners BLG – Equity Report – 20/11/2017 – Pg. 9
WUPP 20171
BluGlass was invited to present at the 5th International WUPP workshop in California,
which gathers many of the leading groups and companies1 in the nitrides community to
discuss various topics such as LEDs, laser diodes and power electronics.
BLG released a significant amount of new data at the conference which related to a
number of applications of its technology to various end uses, but it was selective – there
was nothing from its work with Lumileds or IQE, it was all from its foundry work and Veeco
collaboration. The release and marketing of this data signifies a changing of gears for the
company with regards to not only how advanced its technology is, but also with regards to
its commercialization efforts and investor interaction.
The presentation pack highlighted: i) the testing BLG uses, emphasizing it is to global
industry standards, ii) a number of qualities about its material science that are essentially
pre requisites establishing basic wafer charachteristics in line with industry expectations,
and iii) a number of industry firsts that are keenly awaited by global consumer product
companies downstream from BLG, as detailed below.
Green LEDs grown with RPCVD 35-47% brighter than industry standard
There were multiple data points released relating to the production of LEDs. One of the
most exciting from an investor perspective was the improvement in brightness of green
LEDs. BLG is now making them up to 47% brighter2 than what the industry can currently
make. A 35-47% brighter LED is very significant to the LED industry. Osram’s investor
presentations show that every 1% improvement in brightness leads to a 3-5% increase in
margins. Consequently when BLG first announced a 10% improvement2 in 2016 global LED
manufacturers inundated it for details, some took up collaborations, now at up to 47% the
technology becomes very disruptive and may threaten some business models.
LEDs are made up of half a dozen or more different layers of crystals made from different
elements. The achievements outlined above occur in a layer of the LED referred to as ptype
GaN. BLGs p-type GaN data also showed its RPCVD made p GaN is slightly ahead of
MOCVD with regards to carrier concentration – this is not a money spinner, but it had to
be shown to get RPCVD into consideration and previously BLG could not show it; so it’s a
second reason why we and the technical team at BLG are happy with the new data.
On a completely different layer of the wafer called n-type GaN, BLG has also shown a
number of improvements3, some of which represent characteristics its wafers just had to
have, but also one characteristic - silicon carrier concentration - that once again is much
better than MOCVD and equates to a more efficient, brighter LED.
Finally, BLG also announced for the first time that RPCVD can be used on the first layer of
a wafer (nucleation layer to give better uniformity (consistent thickness) than the industry
practice of using MOCVD called spluttering and save 1.5 hours of an otherwise 5-7 hour
process.
Essentially with regards to LEDs BLG has published a comprehensive data pack across the
many different technical requirements that go into LED production decisions. BLG is
already collaborating with Veeco, HC Semitek and Seren on green LEDs, but with this data
it is clearly advertising its capability to the entire LED industry in order to attract interest
ahead of putting in place exclusive arrangements expected in FY18.
RGB in one process – no one else can do it & it potentially opens multi $bn markets!
BLG has released data showing the production of the full colour spectrum from a single
LED wafer. The implications are enormous. It could solve multiple problems, currently
preventing next generation phones, augmented reality devices and larger displays, such
as: i) current display technologies use most of the power consumed by a phone, which
micro LEDs are expected to cut by up to 90% significantly lengthening time between
1 WUPP for Wide Bandgap semiconductors 2017. Seventeen companies presented at the conference
over two days including: IQE, Lumileds, Sino Nitride Semiconductors, Namiki Group, Alinc Taiwan, and
Nitride Solutions Inc. and there were sixty other attendees.
2 BLGs initial 10% brightness advantage over MOCVD was at 20 nm amp. At this current BLG is now
35% brighter, however 100 nm is more relevant to industry and at 100nm BLG exceeds industry
brightness by 47%.
3
BLGs n-type GaN (ie negative doping of the first GaN layer before the multi quantum well) data
include: i) carrier concentration and atomic concentration of RPCVd n-GaN were the same as MOCVD
which is what needs to be the case, ii) concentrations of hydrogen, oxygen and carbon were in line
with MOCVD where as previously RPCVD was behind. So there are no issues now, and iii) an increase
in silicon carrier concentration significantly exceeding MOCVD. This means more electrons to conduct
electricity that are free to move away and the more electrons that are tunnelled through the
recombination zone where photons are released equates to a more efficient, brighter LED.
Shaw and Partners BLG – Equity Report – 20/11/2017 – Pg. 10
recharges!, ii) Micro LEDs are much brighter, are more robust have better contrast and
response times than LCD or OLED. If a company has aspirations to utilise micro LED
technology in future devices then it now has to be interested in RPCVD because no other
process is able to do this. Nearly all of the big consumer product companies are talking
about Micro LEDs and some are investing in various technologies that will be required to
get into commercial production. Apple acquired Luxvue for USD340m, Facebook acquired
Oculus for USD2bn, both are looking for next generation displays. Neither enable
production of RGB wafers, but both compliment RPCVD. BLG is a long way from
production but the numerous undisclosed companies that have been using its foundry
services to develop this technology will all want exclusivity!
A new generation of power switches
BLG has also published new data showing its work with Veeco on E-mode HEMTs –
transistors that control electricity, turning power on and off - could be responsible for a
completely new and needed generation of products. BLG has shown that the material
science for such a product exists4 but is now working with Grifith University to put it into a
device which will be optomised over the next 24 months and appears to be of interest to
both Veeco and HC Semitek. Applications of the technology are across a multitude of end
uses including: wireless phone infrastructure, V-SAT, defense, WiMAX/LTE, CATV, satellite,
automotive and others.
Uniformity and why it was a big deal
BLGs uniformity achievements announced in September were also exceptionally
important as BLG showed that its process not only worked on 2 inch wafers, but is now
producing good thickness uniformity5 over two, four and six-inch wafers. This was
important because previously BLGs data was all being produced on two inch wafers, but
commercial producers operate with four and six inch wafers. The results attained, met
BLGs targets for progress on its commercialisation projects.
Data is everything, it’s been really good and reflects very well on commercialisation
The data discussed above reflects very significant advances in the wafers BLG can produce,
in many instances putting it well in front of the rest of the world. These advances make us
look forward to when BLG can share more about its achievements on behalf of Lumileds
and IQE which is where it has spent most of its lab time over the last 12-18 months. We
expect it has made very significant advances for these companies as discussed below.
The data indicates RPCVD is a game changer for Lumileds
Phase 1 of the Lumiled collaboration was about the material science advances that BLG
had to prove. BLG passed this stage, but did not disclose any details. This is a sensitive
subject for BLG given the non-disclosure agreements it is bound by, however we believe it
is working on a project related to droop6 in blue LEDs and based on the advances BLG has
disclosed around its work on green LEDs and LEDs in general7, which would impact its
work with Lumileds, we expect it has developed game changing technology. BLGs patent
filings on Lumiled development work is also an indication of significant progress.
Phase 2 was about optimising wafer performance in devices. This entails Lumileds
incorporating iterations of BLGs wafers into devices on its commercial production line.
Finalising phase 2 specs is taking longer than initially expected. We’ve had confirmation
that good progress is being made from Lumileds, multiple BLG Directors and key BLG
executives. The current collaboration does however, have an end date, believed to be
early in 2018 after which BLG can share all of the jointly developed data with Cree and
Osram, suddenly Lumileds could be in a competitive situation for exclusivity.
4 Industry currently relies upon what is called a normally on device, where electricity is normally on,
however industry literature has for some time been highlighting the benefits of a device based on the
electricity supply being normally off. MOCVD has not been able to deliver such a device because the
high temperatures it runs at lead to magnesium defusing into adjacent layers to a depth of 49nm.
RPCVD has shown it limits diffusion to 11nm which is expected to lead to a device that doesn’t leak
electrons to the same extent and is therefore reliable.
5 <3% variance over two and four-inch wafers and <3.5% variance over a single six-inch wafer.
6 Lumileds has published views that improved crystal structures are required to overcome droop. BLG
has shown it improves droop in green LEDs as a result of the lower temperature at which RPCVD
deposits GAN, relative to MOCVD, delivering an improved crystal structure.
7 Page 14 showed RPCVD was having an impact on droop and page21 shows a big improvement in
RPCVD grown MQW the active part of an LED wafer where the electron gives off a photon. This all
relates to enhanced crystal structure of p-GaN and InGaN and brighter performance.
Shaw
